Is your fitness or wellness business leaving money on the table? Or, to put it another way, how do you set your prices? Do you base it on what others in the profession charge? Do you simply mark up your costs? If so, you’re probably leaving money on the table. This common mistake can be avoided with value-based pricing strategies.
Value-based pricing maximizes profits when you offer services focused on meeting specific customer desires, rather than trying to be all things to all people. For many years Toyota has sold essentially identical vehicles using two different brands—Toyota and Lexus. While the cars are near-twins underneath the hood, the price may be $20,000 higher for a Lexus. Very little of that price difference relates to additional cost. Most of it translates to additional profit.
Toyota has been able to do this because it has successfully persuaded buyers that the Lexus brand offers more prestige and better service than the Toyota brand. Lexus buyers pay substantially more, even though the cars are essentially identical.
The same opportunity exists for professionals in all sectors of the wellness industry— nutritionists, personal trainers, physical therapists, healthcare professionals in private practice, and more.
In this article, we explain:
- The basic concepts of value-based pricing
- Tell you how to analyze the value your business offers customers
- Walk you through how to talk to customers about your prices without apologizing or feeling defensive
The success of your business starts with understanding how you add value to the customer’s life. Put another way, what specific pain, problem or concern do you solve for your customers? The answers to many business questions, including pricing, become obvious once you answer this question clearly and specifically.
For example, if you’re a nutritionist specializing in children’s food allergies, perhaps the pain you prevent for your clients is the panic, stress, and cost of frequent emergency room trips, reduction of health issues due to malnutrition, and the lost time from work due to the child’s hospitalization. Compared to a dietician who simply provides general nutrition education, you’re addressing issues which clients almost certainly perceive as much more urgent and high-priority. And their willingness to pay to solve those problems is higher as well, which leads us to our next basic concept, price.
We all know that price is what you charge customers. However, a more meaningful way to think about price is that it represents the financial value to your client or customer of having their problems solved.
Notice that we didn’t mention your costs here. Clients don’t care what your costs are. They care about the value your services add to their lives.
Some elements of value are easy to quantify. In our example above, your services allow your client to avoid some financial costs, like emergency room visits and hospitalization. That certainly adds measurable value. And “soft” benefits, while harder to quantify, are often worth even more to your clients—for example, eliminating a child’s unhappiness or discomfort, preventing the panic and stress of emergencies, and eliminating worries about job loss due to unplanned absences.
A common mistake is to simply mimic what others in your profession charge. But as we pointed out above, clients will pay considerably more to avoid a panicked emergency room visit with their child than they will for a lesson on basic nutrition. Why leave money on the table? Understanding the value your business offers clients lets you fully price your services.
“Price” turns into revenue when you provide services and customers pay you for them. Notice that revenue is third on the list of basic concepts—not first. That’s because until you understand your value, you won’t do a good job of setting your price. And only then can you maximize your revenues.
Cost reflects what it takes for you to provide a service. It includes your time, the cost of contractors and employees, materials and supplies, physical office space, utilities, insurance, and professional services like tax and legal advice. Remember to include the cost of licensure or certification, professional development, and professional memberships.
Can you ever use your cost to justify your price to a customer? Generally, no. Customers view your costs as your problem, not theirs. If certain widely-recognized costs which are entirely outside your control significantly affect your business—gas prices, for example—you may be able to justify raising prices because that cost has increased. But if your accountants just raised their rates, don’t count on using that explanation with your clients to justify higher prices.
Even if higher costs are in fact motivating you to increase prices, find a way to offer additional value to clients to support the price increase. For example, start sending a monthly email with your commentary on current health and wellness-related headlines.
Ah, what we’ve all been waiting for. Profit is simply arithmetic: revenue minus cost equals profit. If you get your pricing right, revenue will follow. Keep tabs on your costs, and profit will follow. It’s important to understand that different sources of revenue have different costs, which means that simply increasing revenue may not be the best way to increase profit.
Now let’s focus on analyzing the value of your services to customers.
Rethinking Your Value
Too many wellness businesses, including professionals in private practice, under-price their services because they don’t understand how customers think about the value they receive.
Even if you didn’t start your business with a particular customer problem in mind, you’ve probably stumbled into a niche where you’re especially successful in helping your customers.
Our goal is to identify that niche and put it to work for you.
As owners and managers, we forget to start with how we make the customer’s life better. Instead, we focus on how much money we want or need to make. Or we worry about our costs. But the customer doesn’t care about how much you pay for paper clips or what your profits are.
Customers care about the problems you help them solve and the pain you make go away. If you understand this, you’ll be able to set prices that fully reflect the value you add to their lives.
Here’s our five-step process to help you think about your business from a different perspective.
1. What problems do you solve for your customers?
If you’re like many business owners, you’re not really sure. Don’t panic. Instead, think about the common threads among your customer success stories over the last year. For example, you may have carved out a reputation for tailoring exercise programs for individuals with chronic conditions like low back problems, fibromyalgia, or disorders like diabetes or multiple sclerosis.
2. What do customers specifically praise about your services?
Perhaps it’s the incredibly supportive atmosphere you provide to women struggling with weight management after pregnancy. They may appreciate the exceptional level of personal service your business offers. You don’t have to guess at how you make a difference in customers’ lives—they tell you, every day. All you have to do is listen closely and look for recurring themes.
3. What uniquely qualifies you to solve these problems?
Think about the reasons that enable you to help these customers. What are you doing exceptionally well that other businesses struggle with? For instance, your personal experience in overcoming a health challenge may be a business asset. You may be very effective at quickly bonding with new customers and establishing a trusting relationship. Your motivational skills may be exceptional, or your attention to detail may be remarkable. Maybe you’ve developed a streamlined approach for customers with very little time.
4. How do you use your know-how to solve customer problems?
Start by listing your degrees, certifications, and significant experiences. But don’t stop there. Think broadly about how you actually use your qualifications and experiences to help solve the customer problems you identified earlier. For example, your nursing or physical therapy background may uniquely qualify you to work with clients with chronic conditions. Often unusual combinations of credentials and/or experience set you apart from the crowd. A personal trainer with a business degree may find it easier to build rapport with busy professional clients. Or perhaps your degree in childhood education and your nursing background led you to specialize in wellness education for school-age kids.
5. How does your track record prove that you add value?
List the client results and customer successes that prove that your services make a difference in customer lives. Be as specific as possible in measuring and describing the impact your business has had on the lives of these customers. Tie their results as clearly as possible to the services and products you sell. For example, “Our expertise in helping busy people lead healthy lives when they’re traveling helped ten clients lower their blood pressure, cholesterol, and weight to normal levels in the last twelve months.”
The bottom line: look for that niche where you are most effective and where your clients see the best results. That’s where you’ll be able to charge prices that most fully reflect the value your services add to customers’ lives.
Now that you’ve looked at your business from a customer perspective, let’s walk through a snapshot of a typical customer conversation regarding price.
How to talk about price with prospects and customers
Sometimes you have to remind customers about the value your business brings to their lives—the problems you solve for them. Customers may approach the topic with a question: “Gosh, that’s a lot. I can get the same service elsewhere for less. Why do you charge so much?” Or they may simply make a comment: “Oh. I wasn’t expecting it to be so expensive.”
Do not commit the fatal mistake of apologizing for your price or immediately offering to lower it. Instead, view this as a great opportunity to remind customers that your business offers them a terrific value.
Start by writing a short sentence that summarizes your answer to each of the five questions above. You’ll see below how to use these summary sentences.
For this example, let’s say that you are a registered dietician who specializes in sports nutrition. You’ve worked with a couple of minor-league athletes and some local university coaches, and you really want to expand your practice in this area. The family of a promising high school track-and-field athlete, Cindy, contacts you. You want to win this client, because building a reputation in this area will really build your practice. On the other hand, you’re concerned that they’ll have sticker shock. You want to maintain your premium price and win the customer. You’ve explained your services and pricing to the parents, who say, “That’s pretty expensive. We’re already having to pay for extra training.”
Here’s how you respond:
Start by acknowledging that you’re not the cheapest game in town.
“You’re right. Other dieticians do charge less…” Hey, it’s true. You know and they know it. So it’s OK to acknowledge it. And starting off with a point of agreement is much better than being defensive or argumentative.
Offer mild praise of the competition.
“…and they do a pretty good job with typical clients.” Again, there’s no harm in taking the high road and acknowledging that for clients with ordinary needs, these other professionals provide adequate services.
Explain the problems you solve for customers and how you’re uniquely qualified to do so:
“…However, my focus is a little different. I specialize in working with other competitive athletes to help them get the results they want when they race (#1). My clients all say that my understanding of the competitive environment is what really sets me apart as a nutritionist (#2). I’ve been a competitive athlete myself, and I have a master’s degree in nutrition with special training in sports-specific nutrition (#3). I’m able to use my professional connections with university researchers, exercise specialists, and personal trainers across the United States to make sure that I’m current on the very best nutritional recommendations, coordinated with your training plan, to help you hit your performance goals (#4).
Refer to your track record, which proves that you can use your capabilities to get results.
“…That’s why I’ve been able to help Joe Smith, Amanda Jones, and Terry Michaels get the results they wanted(#5)…”
Ask for their business.
“…and I’m confident that my experience and knowledge will help you get results too. I’d really like to help Cindy reach her Olympic goals.” Make sure you actually tell them that you feel you can help solve their problem and that you value and appreciate the opportunity to work with them. Seems obvious, but it’s often overlooked. Customers want reassurance that there’s a fit between what you offer and the problem they need to solve.
Practice this conversation out loud until it feels comfortable. Ask a friend to play the customer. You’ll be amazed at how much more confident you feel after practicing. And if you get stuck, give us a call. We’ll be happy to spend a few minutes helping you practice.
Your goal in this conversation is to bring pricing concerns out into the open, so that you can help the customer understand how your business can benefit them. Don’t try to rush your customer to the “yes, we have a deal” point out of fear that if the conversation goes on too long they’ll bring up price. If those concerns exist, you can’t make them go away by ignoring them. That’s why your goal is to bring them out, so that you can actually talk about them. Use probing questions like “Does that help explain why my fees may be different…” and “What other questions can I answer for you?”, and be prepared to restate your main points several times during the conversation.
The bottom line
Don’t leave money on the table by underestimating the real value of your services to customers’ lives. A full understanding of the value you bring allows you to maximize your price and revenue.
Answer five key questions to analyze your business value from the customer perspective: What problems do you solve? What do customers praise? What are your unique qualifications? How do you use your qualifications to solve customer problems? How does your track record prove that your services add value?
Then, be prepared to talk about price. Emphasize that while others may be less expensive, you offer something uniquely effective. Recap the value you offer, and don’t apologize for your price or offer to lower it simply because someone questions it.